REPORT
ON THE ACTIVITIES OF THE COUNCIL FOR DEBTCOLLECTORS DURING THE PERIOD I NOVEMBER 2002 TO 29
FEBRUARY 2004
1. Historical review
I.I Over the last decade there has been a boom in the growth of industries
which service the need of those sectors of society, who were previously to
a greater extent excluded from the services provided by traditional
lending institutions. The majority of these individuals are of the lower
income group. Over and above the easier obtaining of loans the
purchasing of goods on credit by previously disadvantaged people has
become more prevalent. Although the granting of credit has an important
place in our economy, the fact that credit and loans are granted to a vast
majority of the country's work force in the lower income bracket, led to
the inevitable scenario that individuals who historically were
disadvantaged and not used to managing finances, end up in debt. Once
in a debt spiral it is often very difficult to reverse the situation with the
result that creditors do not get paid.
The South African Law Commission in its report on debt collecting inter
aha stated:
" Par. 1.7: From the evidence it was clear that the amounts of money
owed to creditors by debtors who fail to pay, as well as the number of
debtors, had begun to take on enormous proportions in South Africa. It
was emphasized to the Commission that a culture of defaulting was
developing and that the large amounts of uncollected debts had a negative
effect on the economy and ultimately the rate of inflation. According to
the evidence the existing culture of default was aggravated by factors such
as unemployment, an unfavourable economic climate, the ease with which
credit could be obtained and the low deterrent value of statutory
provisions aimed at curbing debt by debtors"
1.2 As it is not objectionable for a creditor to expect of a debtor to pay his
debts, creditors more and more turned inter alia to debt collectors to collect
their debts for them and it is not surprising that having identified a huge
potential market, more and more persons started offering their services as
debt collectors.
1.3 Debt recovery agencies as extra-judicial institutions involved with the
recovery of pre-judgment debts serve as an alternative to the judicial
recovery of debt. However, as a result of the profession being unregulated
the Department of Justice and Constitutional Development (the
Department) received many complaints from members of the public that
debtors were allegedly frequently charged with extravagant fees from
private intermediaries for payment of their debts and that certain persons
who acted as debt collectors make use of unacceptable means to collect
debts on behalf of their clients. This situation, which affected mostly the
poorest people who lack capabilities to access the justice system, has not
only been acknowledged by the SA Government but also by the debt
collectors' profession themselves. As a result a recommendation by the
South African Law 'Comn•ussion that legislation be adopted to establish
control over the activities of debt collectors was accepted and the Debt
Collectors Act, No. 114 of 1998 was passed by Parliament. The Council for
Debt Collectors is not a regulatory body which has been forced onto debt
collectors, but a body which the majority of debt collectors wanted
themselves.
1.4 The Act provides for the exercise of control over the occupation of debt
collectors and to legalize the recovery of fees or remuneration by
registered debt collectors. In the past a debt collector was not entitled to
legally recover any amount from a debtor.
1.5 The overall goal with the Act is to transform the debt collection system in
South Africa by monitoring the conduct and professionalism of debt
collectors and promoting a culture of good governance within the
profession, thus contributing to protecting the public at large as well as
creditors.
1.6 The monitoring and regulatory mechanisms aimed at exercising the
effective management of and control over debt collectors and its
functionaries have been entrusted to a self-sustaining body, namely the
Council for Debt Collectors. The Council consists of a chairperson, a
magistrate, an attorney, four debt collectors, one person representing
consumer interests and two additional members. The present metnbers of
the Council are:
(i) Adv.JJNoeth(S.C) -Chairman
(ii) Mr R Mandelstam - a Magistrate
(iii) Mr H van Rooyen - nominee of the attorneys
(iv) Mr E Joubert, mr S Metisa and mrs R Ferreira- debt collectors
appointed in terms of section 3(2)(iii).
(v) Mrs Y Kwinana - appointed by the Minister in terms of section
3(2)(iv).
(vi) MrsIWilken - appointed in terms of section 3(2)(v) as
representative of consumer interests.
At present there are two vacancies left by Adv. GCM Masemola and
mr CJ Senzani.
1.7 Although the Council for Debt Collectors was finally established in 1998
and the members of the Council appointed in 2000, the Council, due to the
unavailability of funds, was not able to start operating. Whilst the
Department recognized the importance of the Council, it was not in a
position to allocate funding to support the establishment of the Council
and negotiations were started to obtain funds from a donor.
1.8 Due to the efforts oTAdv. JJ Noeth S.C, the present Chairman of the
Council, mr. E Joubert, a member of the Executive Committee and the
support of the Department, the Swiss Agency for Development and
Cooperation, during August 2002, agreed to provide the initial funds to
enable the Coundi to commence with its operations. The first payment
amounting to R800, 000.00 was made in August 2002, followed by a
second payment of R600, 000.00 in December 2002. After the Council
provided the Agency with a certified statement of expenditure and an
audited financial statement for the period I August 2002 to 31 July 2003,
the third and last payment of R147 370.00 was received. A final narrative
report and a certified statement of expenditure for the entire project
period, I August 2002 till July 2004 has to be submitted to the Swiss
Agency at the end of July 2004.
2. Activities of the Council since I November 2002
2.1 During October 2002 the Council appointed an Acting Executive Director,
mr. OA de Meyer to set-up offices, create the necessary infrastructure and
to manage the office. He assumed duty on I November 2002. Once the
exact requirements for the position can be established from the workload,
the post will be advertised and filled on a permanent basis.
2.2 A secretary, me Lulekwa Morgan and systems manager, me Ronelle
Coetzer were appointed with effect from I November 2002 and 2 January
2003, respectively. The Council also appointed me Lillian Mabaso as a
general assistant with effect from 2 January 2003.
2.3 The Council's offices were furnished with good and practical second-hand
furniture, which were purchased at a very reasonable price. The telephone
lines and e-mail facilities for communication were installed. The Council
also installed a computer and electronic equipment to handle the
registration of debt collectors. The Council decided against the handling
of money at its office and encourages applicants to make payment of the
prescribed fees directly into the Council's bank account. The Regulations
have also since been amended to give effect to the Council's decision.
2.4 Since funds became available the Council lost no time to become
operational and was able to recommend to the Minister of Justice and
Constitutional Development (the Minister) to put the Act into operation.
This was done with effect from 7 February 2003. Regulations to achieve
the objects of the Act were also promulgated simultaneously with the
putting into operation of the Act.
2.5 Debt Collectors were given until II August 2003 to register. After that
date no person, excluding an attorney or an employee of an attorney or a
party to a factoring arrangement may for reward collect debts owed to
another on the latter s behalf. An unregistered person who for reward
collects debts owed to another on the tatter's behalf commits a criminal
offence for which he or she can be prosecuted.
2.6 The existence of the Council was brought to the public's attention by way
of press releases by the Minister and the Chairman of the Council. The
Chairman also took part in several discussion programs on the radio and
television. The Minister also at the request of the Council printed the first
registration certificate and the press who were present reported thereon.
The Act and Regulations are also available on the Council's website.
2.7 A code of conduct was adopted by the Council and published in the
Gazette on 16 May 2003. The code which is available on the Council's
website is binding on all registered debt collectors. It is expected of all
registered debt collectors to honour the letter and spirit of the Code of
Conduct. Non-compliance with the provisions of the Act, Regulations and
the Code of Conduct can result in a debt collector being found guilty of
improper conduct. If found guilty an appropriate sentence will be
imposed, which can if justified be the withdrawal of the debt collector's
registration.
2.8 The Council as a self-sustaining body must generate its own funds and is
in all respects a business. The Council must inter alia carry the costs for
having its property insured and pay VAT, Regional Services Council levy
and contribute to UIF, Workmen's Compensation and the Skills
Development Levy. The Council also had to apply to be exempted from
paying Income Tax. The Council's only source of income is the fee
payable on registration and thereafter the compulsory annual subscription
fee a registered debt collector has to pay.
2.9 To prepare a budget is not very easy, especially when one had to budget
for an organization like the Council, which had to start from nothing and
not knowing beforehand how many debt collectors would register.
Although some items could be determined with some measure of
accuracy, the Council had no real indication of what the costs of setting up
a Council, creating infrastructure and the running administration costs
would be. The Council as a result had to be very careful as to how-
available funds were spent. This is borne out by the fact that the Council
started of with only two staff members. In January 2003 a further two (2)
staff members were appointed. As from I August 2003 the Council also
appointed a legal assistant, Adv. Elizabeth Nieuwoudt, to investigate
complaints received .from the public and to lead the evidence at
disciplinary hearings. An accounting officer, me A. Smith has also been
appointed on a part-time basis. Had it not been for this conservative
approach and the dedication of the staff to their tasks, the Council would
not have been able to become fully operational with the limited funds
available to it.
2.10 During the beginning phase it was important for the Council members to
meet more often. All applications to register had to be approved by either
the full Council or the Executive Committee. As it was too costly for the
full Council to meet for this purpose on a regular basis the Executive
Committee had to consider the applications. The Executive Committee is
to be thanked for their dedicated efforts to deal with applications speedily.
2.11 As the debt collectors' profession had in the past not been regulated a
reliable figure of the number of persons in the profession was not readily
available to Council. A figure of between 10 000 and 20 000 was, however,
mentioned. To be on the safe side the Council's planning was based on a
figure of 10 000. As the Act legalized the recovery of certain fees and
expenses by a debt collector from the debtor, it was expected that this
would serve as an incentive for persons to register soon after the Act had
been put into operation. This did not materialize and by the 20th of May
2003 (more than 3 months after the Act came into operation) only 217
certificates of registration had been issued. When it became obvious that
the 10 000 originally envisaged will not register, the Council realized that
it will be unable to meet its future commitments with the funds that
would be available. The situation compelled the Council to consider
requesting the Minister to increase the fees payable by debt collectors. The
expert advise of an outside consultant was obtained to advise the Council
whether an increase was justified and if so what the increase should be in
order to keep the Council in a sound financial position. Notwithstanding
the expert's advice that an increase was due and inevitable the Council
delayed the increase for dedsion until after the final registration figures
on II August 2003 were available. After it was known how many debt
collectors registered the Council had no option other than to request the
Minister to increase the fees. The fees were increased with effect from 7
November 2003. In the case of a company, close corporation or trust the
registration fee and annual subscription fee are Rl 500.00, respectively.
For directors of companies, members of close corporations and trustees it
is R600.00. Officers of companies and close corporations and natural
persons must pay a registration fee of R400.00 and an annual subscription
feeofR400.00.
2.12 As the news of a likely increase in the fees spread and debt collectors
realized that the cut-off date would under no circumstances be extended,
there was a dramatic increase in the number of applications to register. By
the 15th of August 2003,4310 debt collectors had been registered. The bulk
of these applications reached the Council during the final four weeks of
registration. Notwithstanding the severe stress the staff of four (4) and the
Executive Committee were placed under they ensured that all applications
which were received by the Ilth of August were duly considered by the
Council on that date before the Council's offices closed that evening. The
Council can justifiably be proud on what has been achieved with such a
small staff and limited resources.
2.13 Since the Ilth of August 2003 die Council still received a steady stream of
applications. It is surprising how many new-comers applied for
registration with the assistance of the Council's staff. In this manner the
Council contributed to job creation. The number of registrations approved
till 29 February 2004 stood at 6580. The following is a breakdown of this
figure.
Number of companies registered : 119
Number of close corporations registered: 361
Number of trusts registered : II
Number of directors registered : 268
Number of members registered : 538
Number of trustees registered : 18
Number of partnerships and sole
proprietors registered : 402
Number of officers of companies, close
corporations and employees registered : 4863
2.14 In 16 cases the applications to register were refused. The most common
reasons for refusal were incomplete application forms, failure to provide
the Council with particulars of a trust account or failure to pay the
prescribed registration fee. In all cases the applicant was given an
opportunity to rectify what was wrong, but failed to do so. A number of
applicants withdrew their applications after it was pointed out to them
that they were disqualified in terms of section 10 of die Act to register as
debt collectors.
2.15 In 4 cases the certificates of registration were withdrawn. The reason
being that the debt collector failed to pay the annual subscription fee after
being requested to do so.
3. Complaints by members of the public
3.1 The office of the Council is approached on a daily basis by members of the
public who either seek information or have a complaint. They can be
divided into the following categories:
3.1.1 Persons who only want to know whether a specific person is
registered or what a debt collector may or may not do.
3.1.2 The next category of persons, are those who are under the
erroneous impression that the Council can assist them with their
debt problems or disputes with creditors.
3.1.3 Another category, are those who have a complaint. The complaint,
however, does not concern a debt collector over whom the Council
has jurisdiction. It is complaints concerning attorneys who collect
debts or business entities who collect their own debts. As these
instances are exempted from registering as debt collectors, the
Council cannot investigate the complaints. The complainants are,
however, referred to the appropriate authorities who may be able
to assist.
3.1.4 The fourth category represents those people who have a complaint
against a registered debt collector. However, upon being informed
that the person should lodge a complaint in writing which must be
under oath as required by the Regulation, some complainants elect
not to pursue the matter any further.
3.1.5 The fifth category is those people who lodge a formal complaint
which complies with the Regulations. These complaints are
immediately fully investigated. Up-to the end of February 2004 the
Council received 24 complaints against registered debt collectors.
In Z cases the Council, after investigation, was satisfied that the
debt collector could not be faulted and that a charge of improper
conduct was not justified. In a few instances the Council found that
although the actions of the debt collector could be criticized, the
Council regarded it a case of de minimus non curat lex. In such cases
the complainant and debt collector concerned are informed of the
Council's decision. Guidance is given to the debt collector and he or
she is informed that a repetition could lead to him or her being
charged with improper conduct. So far it has only been necessary in
one instance to charge a debt collector with improper conduct. The
matter is still pending. Ten (10) complaints are still being
investigated.
3.2 From the number of complaints the Council receive against persons not
being debt collectors in terms of the Act, it appeared that persons not
falling under the jurisdiction of the Council were making themselves
guilty of exactly that which the Debt Collectors' Act tries to prevent. A
meeting was consequently arranged with representatives of the Law
Society of the Northern Provinces. At this meeting it was decided that the
Council's Code of Conduct should be made applicable to attorneys who
do debt collecting. The representatives of the Law Society undertook to
pursue the matter further.
3.3 The Chairman of the Council and mr. Joubert, a member of the Executive
Committee also met with the Executive Director of the Consumer Credit
Association to discuss the complaints the Council receive regarding
business entities who collect their own debt. As a result of this meeting the
President of the Consumer Credit Association undertook to investigate
the possibility of making the Council's Code of Conduct also applicable to
members of his Association. It has also been agreed that complaints
against members of the Association will be forwarded to the Association
who will investigate such complaints.
3.4 If the Council's efforts in this regard succeed it will to a great extend make
the playing-field between registered debt collectors and others who also
do debt collecting more equal. It can also only be to the benefit of the
general public.
4. Unregistered debt collectors
4.1 In terms of the Debt Collectors Act, 1998 any person who after Ilth August
2003 for reward collects debts owed to another on the latter/s behalf and
who is not registered in terms of the Act, commits a criminal offence and
can be prosecuted. Such cases have to be reported to the SA Police
Services.
4.2 Whenever a member of the public or a registered debt collector brings it to
the Council's attention that an unregistered person is collecting debts,
they are advised to report the matter to the police and to provide the
Council with the necessary information in writing. The Council in cases
where the matter has been reported to the police, liases with the
investigating officer to ensure that the matter is investigated. Although
some persons are prepared to personally lay a charge with the police, it is
the experience of the Council that in most cases the person who contacts
the Council elects to remain anonymous or is not prepared to get involved
by laying a charge. What is surprising is the unwillingness of some
registered debt collectors to take an active part in the policing of
unregistered debt collectors and to lay charges against them. Whilst it is
the Council's aim to bring everybody under the umbrella of the Act, it
cannot act on vague allegations. Where the Council is placed in possession
of sufficient information the Council acts out of its own accord to lay
charges with the police. At present 9 such cases are under investigation by
the Police. A number of instances also registered after being contacted by
the Council.
5. The Council's vision for the future
5.1 Now that the registration process has been completed successfully, the
Council will concentrate on the main objective of the Act, namely to
protect the public by exercising proper control over the occupation of debt
collectors. The Council should also make sure that debt collectors who do
not register are prosecuted. The Council realizes that the transformation
process of the debt collectors' profession is a long term process. It is also
mindful of the fact that if it is unable to effectively monitor and exercise
control over the debt collectors' profession, the objective of the Act will
not be achieved. Complaints will have to be dealt with without undue
delay and where justified disciplinary action will have to be taken. The
investigation of complaints and disciplinary hearings will bring huge
costs for the Council. As this is still early days, it is very difficult at this
stage to establish with any certainty what the costs of investigating
complaints and the hearings are going to be.
5.2 To achieve the future objectives of the Council, the Council will inter alia
have to embark on an advertising campaign to inform the public of the
Council's objective. This will be costly. Although members of the public
contact the Council on an almost daily basis, it will increase as the public
becomes more and more aware of the Council's existence and objectives.
5.3 The Council also has a duty towards the profession and in order to
promote professionalism amongst debt collectors the Council will have to
assist in the training and empowerment of debt collectors. This is
especially so in the case of new-comers to the industry, many of whom
come from the previously disadvantaged sector of the population. The
funds available will, however, dictate to what extend the Council will be
able to do so during the coming year.
5.4 It should be borne in mind that with the registration process the Council
received double payments in respect of each successful registration. In
future the majority of the funds will be coming from the annual
subscription fees only. Because most debt collectors waited until the last
moment to register, the Council will for the first months of the financial
year have little income. The Council's budget for die year 2004 / 2005 was
drafted in the light of the actual expenses during the present financial year
and expected expenses during the next financial year. In drafting the
budget only income that can be expected from current registered debt
collectors was taken into account. Certain expenses had to be estimated,
for example expenses for disciplinary hearings and the investigation of
complaints. The Council should after two years be in a much better
position to draft a more accurate budget when comparable figures of the
past and tendencies are available. By following a very conservative
approach in drafting a budget, the income should be sufficient to cover
the expenses without having to make use of outside or reserve resources.
Signed at PRETORIA on this 3rd day of March 2004.
Adv. J J Noeth, SC Mr. 0 A de Meyer
CHAIRMAN ACTING EXECUTIVE DIRECTOR
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